Economic and Climate Challenges in the Mendoza Wine Region
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DISCUSSION BRIEF Economic and climate challenges in the Mendoza wine region Argentina’s Mendoza region produces world-famous wine, making it one of the largest wine producers in Latin America. But like many wine-producing regions, Mendoza faces challenges as the climate changes and water demand increases. Smallholder producers could be particularly hard hit. Though they produce a majority of the region’s wine grapes, they don’t reap the economic benefit of the inter- national growth in wine demand. Smallholders also are increasingly vulnerable in their water supply due to emerg- ing climate conditions. As observed by Carlsen et al. (2016), it “covers only half of the story” to focus on potential climate impacts alone; socio- economic conditions also evolve over time. An evaluation on how to adapt water supply policies to climate change should consider the current socio-economic struggles to ensure a sustainable future and economically thriving outcome. © Tony Bailey/Flickr © Tony The Mendoza region of Argentina is one the largest wine producers in Latin This brief provides an initial overview of the Mendoza wine America, but it faces challenges ahead as the climate changes. production region by examining the literature on production history, economic difficulties of small wine-grape grow- This turning point for the industry came at a tremendous ers, current climate-related challenges, and water-related socio-economic cost for the growers and the region. Howev- policies. This overview describes existing socio-economic er, this experience birthed a new platform for wine produc- vulnerabilities, in particular for small growers in the wine tion that focused on quality and improved the international industry. It also identifies the challenges in water supply reputation of Argentinean wine. regulations that are based on historical, and more consistent, water conditions, as well as a trend towards more frequent Today, Mendoza’s main economic activity is wine produc- and more extreme drought events. tion (Castex et al. 2015). Despite its dry climate, 4.8% of the territory is composed of an irrigation oasis that contains The study described in this brief confirms the need for robust most of the agricultural production, including wine grapes, approaches that inform decision-making about longer-term and 95% of the population of the Mendoza province (Bon- climate vulnerabilities, about more adaptive water manage- insegna and Villalba 2006; Masiokas et al. 2006; Reta 2003; ment policies and about preparations for potential economic Yapura and Salomon 2015) . Mendoza is the main wine impacts on the regional economy. producing region of Argentina: 72% of the country’s wines and musts1 and 69% of its grapes come from there. Most The Mendoza wine region: from quantity to wine exports go to markets in North and South America, the quality Netherlands, the U.K. and Japan. Driven by domestic demand and price control regulations, wine supply and production growth in the Mendoza region Mendoza’s signature wine is Malbec, and it is the world’s of Argentina has historically been dictated by the quantity, main producer of Malbec wine grapes. Figure 3 shows that and not the quality, of wine. Figure 1 provides an annotated 60% of Malbec wine is produced in the Mendoza region. historic timeline of wine production in the region. Data from Wine Spectator magazine illustrates the gradual increase in both quality score value and bottle prices of The introduction of high yield varieties increased production Mendoza wines since the 1980s crisis (Figure 4) and il- of low quality wine grapes in the 1970s (Biondolillo 1999). lustrates that the region’s push to increase the quality of In addition, minimum price controls at the national level wine and sales around the world has helped Malbec gain prevented wine supply from adjusting to changes in demand. international recognition. The large domestic production of low-price wine promoted the growth of lower quality wine, causing an increasing The plight of the small grower overstock that led to an increase in quantity and a progres- Not all growers benefit from this improvement in interna- sive reduction of prices over time. In the 1980s, the over- tional reputation. A large portion of small growers are still stock of wine was so substantial and so lacked international struggling to produce wine grapes with acceptable interna- quality standards that it generated a crisis for the sector, tional standards, leaving them particularly vulnerable to ex- resulting in the closure of many wineries and the eradica- ternal shocks such as changes in the value of the Argentine tion of 100,000 hectares of wine grapes, 35,000 hectares of which were Malbec vines (Richard-Jorba 2008; Richard- 1 Must is freshly pressed fruit juice that usually comes from grapes. It contains Jorba 2010; Rivera Medina 2006). the skins, seeds, and stems of grapes and is the first step in winemaking. Sheet 2 250,000 200,000 5) 1980's: 100,000 hectares was s e 4) Highest erradicated. r 150,000 a production of t c 253,110.65 e Hectares 6) 1990: The H 2) 1959: Creation of industry started The National a slow 100,000 Institute of recovery. Viticulture 8) 2001 - 2005: 3) 1960: Wineries start to The Patrimonio value quantity over 9) 2005: Mendoza 7) 1993 and 1996: de Mendoza quality to supply the high enters in the Great 50,000 1) Initial stages Old wineries was created. local demand. Wine Capitals of production. became museums (GWC) Network. and restaurants. 0 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 4 5 5 5 5 5 6 6 6 6 6 7 7 7 7 7 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 Figure 1: Hectares of wine grapes produced over time and key historical events. SuPreparedm of Mend byoza the for authoreach AÑ basedO. The voniew the is fi informationltered on AÑO from, whi cRichard-Jorbah excludes 1946 2008;, 1947 a Richard-Jorband 1948. 2010; Richard-Jorba 2006; Moretti-Baldín 2008; Rivera Medina 2006. Pie Chart Size (thousand $, 2012) Netherlands: 7,674 MWE=$31.6 million 100,000 Canada: MWE= 200,000 $77.6 million U.K.: MWE= 300,000 $39.6 million 428,034 United States: MWE=$338.1 million Japan: MWE= $19.6 million Venezuela: MWE= $8.7 million Chile: MWE= $7.6 million Mendoza Exports Wine (MWE) Brazil: MWE= Rest of fresh fruits $53.3 million Pumps Other Metals Oil Machinery Garlic Fruit Juice & Horticulture Food waste for animal feed Electronics Dry and Frozen fruit Figure 2: Mendoza exports from various sectors and Mendoza Wine Exports (MWE) for main export countries. Prepared by the author based on the information from Gobierno de Mendoza (2016) Argentina France Chile United States Province Australia Not Argentina Buenos Aires catamarca Italy Chubut La Pampa South Africa La Rioja Mendoza Neuquen Spain Rio Negro Salta New Zealand San Juan Canada 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 , , , , , , , , , , , , , , , , 2 0 8 6 4 2 0 8 6 4 2 0 8 6 4 2 3 3 2 2 2 2 2 1 1 1 1 1 Malbec Hectares Figure 3: Top 10 producers of Malbec wine grapes. Prepared by author based on information from Anderson and Aryal (2013). Score 86 220 87 88 200 89 90 180 91 92 93 160 e 94 c i r 95 P e 140 96 s a e l e R 120 e l t t o B 100 . g v A 80 60 40 20 0 5 4 3 2 1 0 9 8 7 6 5 4 3 2 1 0 9 8 7 6 5 4 3 2 1 5 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 Figure 4: Prepared by author based on information from Wine Spectator Database (2016) peso against the dollar. A majority of the wine produced in Any changes that affect the wine industry will have a great Argentina – as much as 95% some years – is low quality, impact on a large portion of the families in this sector. low value and produced by thousands of small producers and families (Biondolillo 2008). Small growers are struggling One of the main economic challenges for wine production in to be as competitive as large growers in their production. To Mendoza is how to prevent the widening of the current gap do so, they reduce costs by cutting out practices that ensure of quality standards between large and small growers, and vine health and by progressively decreasing grape quality; how to instill changes in small grower production choices this causes the value of the wine to decrease even further.